Russia gives Ukraine a financial lift

December 17, 2013

Russia gives Ukraine a financial lift

Russia gives Ukraine a financial lift

Russian President Vladimir Putin gave Ukraine’s hard-pressed government a strong financial assist in the form of a $15 billion loan and a sharp cut in the price of natural gas Tuesday, preempting European Union leaders.

With their protest encampment in Kiev, the capital of Ukraine, now in place for a fourth week, demonstrators demanded to know what terms President Viktor Yanukovych had agreed to during his one-day visit to the Kremlin to land such a deal.

Vitali Klitschko, the former boxer who heads the opposition UDAR party, told protesters Tuesday evening that he thinks Yanukovych secured the loan with Ukrainian property — perhaps the natural gas pipeline network — as collateral.

“Only early elections can be a solution for the country,” Klitschko said. “Yanukovych told us at the roundtable [last Friday] that he is not afraid of early elections. I am challenging Yanukovych — he is my personal rival, and I am calling him to the ring.”

The risk to Putin from Tuesday’s move is twofold: He has potentially embroiled Russia in both Ukraine’s tottering economy and its political passions.

The two countries also signed a package of lesser trade accords, amid agreement that they need to reduce trade barriers. Afterward, Yanukovych said, “This work wouldn’t have been done at this optimal speed if not for the Russian president’s political will.”

The conditions of the loan were not disclosed. Putin said the drop of about 33 percent in the price of gas might be temporary.

Ukraine, heading for financial straits, has been bobbing and weaving between the European Union and Russia. Tuesday’s deal lifts some of the immediate financial pressure but does not appear to be a clear signpost for Ukraine’s future. Both sides said the two presidents did not discuss whether Ukraine might join Putin’s new Eurasian Customs Union.

The key question will be whether Ukraine keeps talking to the E.U. about new terms for a trade pact or whether its recently renewed negotiations with the bloc were merely a ploy to get Putin’s attention.

A desire to side with Europe is what drew the protesters out late last month, and the domestic pressure on Yanukovych could mount after Tuesday’s development. Week after week, hundreds of thousands have turned out to protest his decision to back off on the deal with the E.U., and the demands that he and his government resign have escalated, even as the government resumed talks with sometimes exasperated E.U. officials in Brussels.

The protesters are deeply suspicious of Russia and of Yanu­kovych’s real intentions. When Putin’s name came up at a rally in Kiev on Sunday, it was met with jeers and derisive whistles. On Tuesday, as reported by the Kyiv Post, a group of women showed up at the Russian Embassy to deliver pumpkins — a traditional Ukrainian way of declining a marriage proposal.

About 30 percent of Ukraine’s trade is with Russia, and a similar amount is with the E.U. Certain sectors of the Ukrainian economy would be hurt by a deal with Europe if Russia erected trade barriers in response, as Moscow has vowed to do.

But Ukraine’s main business oligarchs are not eager to see their country succumb fully to Russia’s embrace, for fear that their companies would fall to Russian raiders.

Ukraine pays about $400 per thousand cubic meters of gas, one of the highest prices in Europe, and is contractually obliged to buy a minimum amount. On Tuesday, Putin cut the price to $268.50. It was not clear whether the minimum stays in place. The $15 billion loan, denominated in euros, comes from Russia’s rainy-day fund.

Early in the day, analysts speculated that Ukraine might make it easier for Russia to ship gas across its territory to Europe, or perhaps give Russia a freer hand at its naval base in Sevastopol, in Ukraine’s Crimean Peninsula. But no such details were available after the presidents’ meeting.

Before the meeting, Putin noted that trade between Ukraine and Russia had dropped 11 percent in 2012 and was down 15 percent in the first nine months of this year — some of that because of customs slowdowns and sanitation-related hold-ups imposed by Russia when it appeared that Yanukovych would sign on with Europe.

Putin said it is important for the two countries “to reverse this negative trend.”

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